Corporate Governance is the way a public limited company is governed and the way its directors report to shareholders. Reading chapter 5 of the core textbook (Auditing Fundamentals by Davies and Aston, 2011), critically evaluate the effectiveness of the s. Needs to be plagiarism free!
In contrast, functional approach refers to the functioning of various institutional arrangements in differing ways. It recognizes the fact that there are numerous ways of addressing governance concerns that are similar in nature. It is considered to be an open-minded approach which examines the existence of various possibilities. There are mainly two systems in the literature of corporate governance such as outsider system and insider system of corporate governance. The outsider system which is also known as dispersed system of governance is characterised by shareholder protection and dispersed ownership and is considered to be largely associated with the US and the UK. The insider system which is also known as concentrated system is characterised by weaker protection to shareholders and concentrated ownership and is considered to be mainly associated with European governance systems. The corporate governance of the UK is considered to have high standards associated with relatively low costs. The report by Governance Metrics International in the year 2009 showed the UK in the second position with regard to average governance performance by organizations in various countries.
The UK’s corporate governance process has its basis in a series of scandals and corporate collapses in the 1980s and early 1990s. This led to the need of UK business communities of putting its house in a proper and orderly manner. In this regard, Sir A. Cadbury set up a committee in the year 1991 which made a series of recommendations in the year 1992. The report is known as the Cadbury Report (Tirole, 2001, pp 1-6). The Cadbury Report addressed numerous factors such as reporting based on internal control, role of non-executive directors, and the relationship between chief executive and the chairman.